U.S. Manufacturing Strongest in Three Years

The ISM Manufacturing index rose by 2 points to 59, above estimates of 57, according to the Institute for Supply Management. Any number above 50 indicates expansion. With an expanded rate of manufacturing, the U.S. is seeing manufacturing expand at the fastest rate in three years. The index also saw a high for new orders that indicate demand has reached its strongest level since 2004.

The ISM Manufacturing index rose by 2 points to 59, above estimates of 57, according to the Institute for Supply Management. Any number above 50 indicates expansion. With an expanded rate of manufacturing, the U.S. is seeing manufacturing expand at the fastest rate in three years. The index also saw a high for new orders that indicate demand has reached its strongest level since 2004.

“The August PMI is led by the highest recorded New Orders Index since April 2004 when it registered 67.1 percent. At the same time, comments from the panel reflect a positive outlook mixed with caution over global geopolitical unrest,” said Bradley Holcomb, Chair of the ISM Survey Committee.

While many survey respondents said demand is strong and business has quickened to a stronger rate than seen in recent months, a number of respondents said that labor is becoming a concern, with one respondent saying increased wages is a concern “but manageable”.

While the PMI is up 1.9% to 59 and New Orders has risen 3.3% to 66.7, production is also up 3.3% and inventories rose 3.5%. Customers’ inventories rose the fastest (5.5%) and only supplier deliveries and employment declined, with the employment index falling 0.1% to 58.1.

The PMI also said aluminum, electronic components, and steel of various types were up in price. Copper, corn, methanol, natural gas, and soybean oil were down in price with stainless steel in short supply.

Construction Spending Strong

Construction spending in the U.S. rose 1.8% on a month-over-month basis, reaching its highest level in nearly six years. According to the Commerce Department, construction spending rose to $981.31 billion on annual rate, its highest level since December 2008.

Private construction rose 1.4%, also to its highest level since the end of 2008. Private residential construction spending rose 0.7%. Some analysts believe that falling mortgage rates may be encouraging more home buying activity, after rates spiked in the second half of 2013, only to fall again in the first half of 2014. At the same time, private residential construction spending growth is also being driven by greater home improvement spending.

Private nonresidential construction spending say the greatest jump, with factories, manufacturing, and energy infrastructure spending rising 2.1% in July, the highest level in five years.

Strong U.S., Weak China

In sharp contrast to the strengthening indicators from the U.S., China reported light growth that fell short of expectations. HSBC’s China Manufacturing PMI fell to 50.2 for August. Employment and input prices saw declines, which many analysts said is an indicator of downward pressure on Chinese growth.

HSBC Chief Economist for China Hongbin Qu said that weak domestic demand was driving the PMI lower, and the outlook for 2014 remains moribund. “Although external demand showed improvement, domestic demand looked more subdued. Overall, the manufacturing sector still expanded in August, but at a slower pace compared to previous months. We think the economy still faces considerable downside risks to growth in the second half of the year, which warrant further policy easing to ensure a steady growth recovery,” Qu said.